The country is waiting with bated breath for the Q2 GDP print. Even as top estimate show chances of a 7% plus reading, India’s overall macroeconomic environment remained stable in October.
Economy resilient despite global headwinds
According to the finance ministry’s Monthly Economic Review data for October indicated a resilient domestic economy despite global uncertainties. GST rate rationalisation delivered a “measurable” boost to consumption, while easing inflation and softer merchandise exports were among the key drivers shaping the economic outlook.
“The economy enters the second half of FY26 on a stable footing, anchored by well-contained inflation, resilient domestic demand and supportive policy dynamics, even as global uncertainties warrant continued vigilance,” the government report said.
Q2 FY26 GDP estimated at 7–7.5%
With regard to growth prospects, it said that various independent economic assessments place real GDP growth for Q2 FY26 in the range of 7–7.5%, indicating continued strength in underlying economic activity. The government is due to release its Q2FY26 GDP data on November 28.
GST reform lifts activity and demand
The report noted that economic activity has gained momentum following the reduction in the Goods and Services Tax. However, “the full impact of GST rationalisation on spending behaviour would become more evident over the next two quarters,” it added.
GST collections also grew 9% in April–October, reflecting robust consumption and better compliance.
The festive season gave a further push to demand in October. Automobile retail sales hit lifetime highs, rising 40.5% YoY. Sales during the 42-day festive window surged 21%. Rural demand was strong as tractor sales touched their highest level in 11 years.
E-way bill generation, required for moving goods above Rs 50,000, rose 14.4% YoY in September–October 2025.
The report said the easing of inflation and tax benefits are expected to lift spending further in the coming quarters.
Inflation falls to historic low
GST rationalistion also resulted in retail inflation dropping sharply to an all-time low of 0.25% in October, down from 1.44% in September. Food inflation slipped 5% year-on-year, led by corrections in vegetables such as tomatoes, onions and potatoes, along with softer pulse prices. Core inflation remained steady at 4.3%.
PMI jumps to 59.2 in October
The GST relief drive momentum in production economy as well. The manufacturing PMI climbed to 59.2 in October, from 57.5 in September, helped by tax relief, productivity improvements and technology adoption. Services activity remained strong, with the PMI at 58.9.
Trade pressures persist despite, Merchandise exports drop 11.8%
The report noted, “the external environment remains characterised by elevated trade policy uncertainty, though global pressures have moderated relative to earlier peaks.”
Trade performance weakened in October. Merchandise exports fell 11.8% while imports surged 16.6%. Gold imports rose 199.2% and silver imports jumped 528.7%, reflecting rising prices. As a result, the merchandise deficit widened to $41.7 billion. However, services exports reached their highest-ever monthly level at $ 38.5 billion, helping offset 48% of the merchandise gap.
The report also noted that to strengthen exports, the government is pursuing diversified trade partnerships. It has concluded the India–UK CETA and is negotiating FTAs with the EU, US, New Zealand, Chile and Peru. The Export Promotion Mission with an outlay of Rs 25,060 crore aims to support MSMEs and first-time exporters.
Despite global risks, India’s forex reserves hit $687 billion
The finance ministry report further said that global uncertainties — including shifting trade policies, geopolitical frictions, and financial market volatility — pose potential headwinds to exports, capital flows, and investor sentiment.
Net FDI rose to $24 billion in April–September, compared to $15.6 billion a year earlier. Gross inflows increased, while repatriations slowed. Portfolio flows turned positive in October, with net FPI inflows of $ 4 billion, although outflows across asset classes since April were modest at $ 205 million.
Foreign exchange reserves remained strong at $687 billion as of November 7. The reserves provide an 11-month import cover and account for nearly 92 per cent of India’s total external debt.
India’s budget balance strengthens
The Union government maintained fiscal discipline in the first half of FY26. Gross tax revenue grew 2.8%, but higher tax devolution to states brought down net taxes. Non-tax revenue rose sharply by 30.5%, helping lift net receipts to 49.6% of Budget Estimates.
Capital expenditure grew 40%, while revenue expenditure increased just 1.5%. Fiscal deficit reached 36.5% of full-year estimates, and revenue deficit just 5.2%, indicating strong budget management.
Labour market stays resilient
Labour market indicators showed seasonal moderation. Labour force participation rose to 55.1 per cent in Q2 FY26, while unemployment fell to 5.2%. Around 8.7 lakh jobs were created in Q2.
Hiring sentiment for 2026 remains positive. A joint report by Taggd and CII estimates hiring intent at 11 per cent next year, up from 9.75% in 2025, driven by sectoral expansion and digital adoption.
The government highlighted recent implementation of four consolidated labour codes—on wages, industrial relations, social security and workplace safety. The review said these reforms replace 29 older laws and “lay the groundwork for a future-ready workforce.”
Healthy corporate earnings and domestic investors drive market sentiment
The report also highlighted that corporate earnings stayed healthy in Q2, with net profit rising 12.3%. Profit after tax reached 11.1% of total income, among the highest in recent years.
Domestic markets also strengthened in October as the MSCI India Index gained 4.2%. FPIs turned net buyers after four months of selling, while DIIs surpassed foreign investors for the first time in 13 years, holding 18.3% of market value.